MUMBAI: Top telecom operators are rushing to launch 4G services in the run-up to Reliance Jio Infocomm's commercial launch, but once they complete phase one, 4G expansion will cool off until customers adopt the technology and capex geared towards the high-speed broadband services may slump by half, say telcos and experts.

They add that the initial launch is to help top incumbents Bharti Airtel, Vodafone India and Idea Cellular protect key markets and increase Mukesh Ambani-owned Jio's challenge to crack cream customers.

Idea Cellular’s chief financial officer Akshaya Moondra told ET in an interview that 4G launches in the 12 service areas where the company has airwaves will gather steam, after which there will be a cool off on investment on 4G.

Moondra added that capacity was being created ahead of its demand on the networks.

“Between Reliance Jio, Bharti, Vodafone and Idea, capacity is being quadrupled. Data is growing, but not at that pace,” said Moondra.

Prashant Singhal, global telecom leader, Ernst and Young, said all incumbent carriers are going after “the first mover” advantage.

After the first phase, till say April-May of 2016, the second round of 4G investments will begin when customers begin to migrate to higher Internet speeds over the next nine-12 months from the end of the phase one. An analyst, who asked not to be named, said the October-December quarter results showed data adoption has been slower than expected, because consumers have still preferred to wait on 2G connections, rather than upgrade to 3G at a 30% premium, even though they have 3G-enabled devices.

Credit Suisse noted that market leader Bharti Airtel’s data revenue growth in the just ended quarter slowed sharply to about 50% on year, from over 70% levels just about two quarters ago. Idea’s third quarter numbers also reflected a similar fact.

The crux of the current launches is incumbent mobile operators’ effort to guard key markets. Brokerage CLSA said Jio is expected to gain 7% market share by March 2018, assuming a March 2016 launch, a majority of subscriber additions in the first flush in urban areas. The brokerageexpects over 55% of Jio’s subscribers to come from Bharti Airtel (15 million), Idea Cellular (10 million) and Vodafone India (20 million) – a point that has been the trigger for the incumbents to launch and expand 4G services rapidly.

A senior executive at one of the top mobile companies agreed about a possible nine-month stagnation in 4G deployments.

“The battle will mostly be on functionality, the concept of technology and speed are just optics,” he said, implying that having the technology is important for high-spending customers to feel they get the best. The Jio threat won’t be neutralized by sheer speed, but by being available when and where the customer is pulling data.

An analyst with an MNC brokerage estimates the total annual spend on 4G per company at about Rs 4,000 crore in the first phase of launch. Idea raised its annual capital expenditure outlook by Rs 1,000 crore to Rs 7,500 crore, mainly on 4G but also including 2G and 3G expansion.

Companies maintain that 3G expansion that is in tandem with demand will remain unhindered.

The analyst said in the next financial year, the 4G expense would be lower by more than half, maybe even more if spectrum auctions are conducted. However, the financials will not reflect any benefit from it, because the amount will be either spent on airwaves and finance charges from debt will show, or because companies will commit that to a pricing war with the launch of Reliance Jio.

The Department of Telecommunications is expected to auction airwaves that are in attractive frequencies for data technologies, but they are likely to be very highly priced.

Singhal of E&Y disagreed on a dramatic change in 4G investment. “It is not that black and white, a metro may require more 4G sites right away while a B-class town may not need any for the next two years,” so investment will need to continue, he said.

Jio is expected to launch its services commercially around mid-April. It launched a pilot for employees only in December and is currently collecting consumer feedback. The company is expected to launch Internet services at a scathingly low price. Airtel, Vodafone and Idea have already launched 4G and are scaling up rapidly.

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